Midas Auto Repair Franchisee Hit Hard for Bait-and-Switch Scheme

OAKLAND, Calif. - California announced a $1.8 million settlement that prevents franchisee Maurice Irving Glad, owner of 22 Midas shops throughout California, from owning or operating an auto repair shop in the state, after the franchisee "deceptively lured" customers with cheap brake specials and then charged hundreds of dollars for unnecessary repairs.

As part of the settlement, Midas International Corporation (NYSE: MDS) is acquiring all of Glad's shops, which therefore will continue to operate without interruption. In addition to acquiring Glad's 22 shops, Midas International Corporation has agreed to honor any and all guarantees or warranties previously made or given to customers.

After a four-year undercover investigation by the California Bureau of Automotive Repair, the State filed suit against Glad in June 2009. The investigation revealed that Glad regularly advertised $79 to $99 brake specials at his Midas shops to draw in customers. He then often charged another $110 to $130 for bogus repairs to resurface brake-rotors. In some cases, customers were charged hundreds of dollars more for repairs that were not needed nor even performed.

Chris Schmitz, an owner of three Meineke auto repair shops in Northern Virginia, a competitor to Midas shops, and president of the nation-wide Meineke Dealers Association, says, "This type of behavior gives a black-eye to the entire industry, not just a single franchisee or franchise system. The battle in aftermarket automotive repair to gain the trust and respect of the client has always been uphill, and this just tilts it a little more in that direction."

Attorney General Edmund G. Brown Jr., attorney general for the State, declared, "For years, Glad ran a bait-and-switch scam, in which he deceptively lured customers into his Midas shops with cheap brake specials, then charged them hundreds of dollars more for unnecessary repairs," Brown said. "Our settlement makes sure that Glad will never own or operate an auto repair shop in California again."

In 1989, the state attorney general sued Glad for similar violations, which resulted in an injunction prohibiting his shops from performing unnecessary repairs, charging for services not performed, or using scare tactics to convince customers to purchase unnecessary parts and services. The California Bureau of Automotive Repair initiated its recent investigation into Glad's Midas shops to monitor compliance with the injunction.

Undercover agents, posing as customers, conducted approximately 30 sting operations at Glad's shops. In total, there were more than 35 incidents, involving 105 violations, in which shop managers, mechanics and employees made false or misleading statements to pressure customers into purchasing unnecessary parts and services. On average, the shops charged undercover agents almost $300 in unnecessary brake-rotor resurfacings, brake-drum repairs, brake adjustments, brake-cleaning services and other services.

Overselling of services has become an increasing problem," said California Bureau of Automotive Repair Chief Sherry Mehl. "It amounts to fraud and seriously harms the consumer. That's why we aggressively work to find and shut down these shops."

"The Department of Consumer Affairs has zero tolerance for consumer fraud," said California Department of Consumer Affairs Director Brian Stiger. "We are very pleased that, in partnership with the Attorney General's office, we have been able to stop a bad player from further harming both consumers and the hard-working, law-abiding players in the auto repair industry."

Bob Troyer, director of corporate affairs for the nationwide chain of Midas International Corporation, thinks the problems that were created from the errant franchisee were only local in scope. "The publicity about the lawsuit and the investigation was very limited to California," he says. Although auto repair sales in California were soft, Troyer says it is difficult to say how much was because the public related Midas to bogus bills and how much was because of California's soft economy. "California was going through serious economic issues," he observes.

Troyer says that the chain's image will be lifted as it takes over the 22 franchised outlets to become company-owned. "We will bring a level of workmanship and integrity to the operation that will help insure that customers get good service and are treated fairly and honestly," he declares.

When asked how Midas would better catch repair shops who want to cut corners, Troyer replied, "The way we monitor is through consumer complaints that come into our own consumer affairs operation at company headquarters."

However, Troyer observes that in Midas' collecting of consumer complaints that it would not have caught Glad's switch-and-bait maneuvers in California. "There was nothing out of the ordinary," he states about the complaints.

If these maneuvers by Midas are not good enough to catch franchisee cheaters, Meineke's Schmitz suggests that consumers may have the ultimate solution to concocted car care charges. "Maybe this will make those customers that have found truly trustworthy facilities even more loyal to them going forward when they consider the potential consequences of going elsewhere," says Midas' competitor.